Circular No : 5
Date of Issue : 30/7/2002
Section(s) Referred : s. 194I
Statute : Income-Tax Act
Circular No. 5 of 2002, dated 30th July, 2002.
All Chief Commissioners of Income-tax and
Director-Generals of Income-tax.
Subject: Tax deduction at source under section 194-I of the Income tax Act, 1961 and Circular No. 715, dated August 8, 1995--Clarification regarding scope of section 194-I of the Income-tax Act.
Circular No. 715, dated August 8, 1995 has been issued by the Central Board of Direct Taxes to clarify various provisions relating to tax deduction at source under various provisions of the Income-tax Act. Question No. 20 of the aforesaid circular related to applicability of the provisions of section 194-I of the Income-tax Act in respect of payments made to a hotel for rooms. The relevant question and answer is reproduced below:
"Question No. 20: Whether payments made to a hotel for rooms hired during the year would be of the nature of rent?
Answer: Payments made by persons other than individuals and Hindu undivided family for hotel accommodation, taken on regular basis will be in the nature of rent subject to TDS under section 194-I".
In this context, doubts have been raised as to what constitutes "hotel accommodation taken on regular basis" for the purpose.
(2) The Board have considered the matter. First, it needs to be emphasised that the provisions of section 194-I do not normally cover any payment for rent made by an individual or Hindu undivided family except in cases where the total sales, gross receipts or turnover from business and profession carried on by the individual or Hindu undivided family exceed the monetary limits specified under clause (a) or clause (b) of section 44AB. Where an employee or an individual representing a company (like a consultant, auditor, etc.) makes a payment for hotel accommodation directly to the hotel as and when he stays there, the question of tax deduction at source would not normally arise (except where he is covered under section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the company merely reimburses the expenditure.
Furthermore, for purposes of section 194-I, the meaning of "rent" has also been considered. "Rent" means any payment, by whatever name called, under any lease ... or any other agreement or arrangement for the use of any land.... The meaning of "rent" in section 194-I is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on "regular basis". Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on "regular basis". Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement.
3. However, often, there are instances where corporate employers, tour operators and travel agents enter into agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers. Such agreements, usually entered into for lower tariff rates, are in the nature of rate contract agreements. A rate contract, therefore, may be said to be a contract for providing specified types of hotel rooms at pre-determined rates during an agreed period. Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation "taken on regular basis", as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements.
(Sd.) Anand Jha,
Deputy Secretary to the Government of India.